BA warns revenue will decline

BA beats expectations with first-quarter operating profit after posting a full-year loss since floating 15-years ago

LONDON, England (CNN) -- British Airways, Europe's biggest airline, said on Friday first-quarter profit rose more than 50 percent after it axed thousands of jobs, cut costs and grounded aircraft but warned revenue would decline.

Net income in the three months to June 30 rose to £40 million, or 3.7 pence a share, from £26 million, or 2.4 pence a share, in the year earlier period. Sales fell 10.7 percent to £2.05 billion.

BA, which has cut more than 13,000 jobs and is overhauling its European operations to take on low-cost operators, said market conditions remained tough and warned revenues would be below last year's level. Previously the airline had forecast flat revenues for 2002/03.

"The travel market continues to be subject to considerable global economic and political uncertainty, and is expected to remain soft for the remainder of the year," Chairman Lord Marshall said in a statement.

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"As a result, full year total group revenues are expected to be lower than last year and improvement in operating results will come principally through cost reductions."

BA's stock plunged 7 percent to 139.5 pence in midday London trading on Thursday.

"The only dampener on the result was their outlook statement, saying that revenues would be lower for the full year whereas the previous guidance was they would be flat,'' analyst Andrew Light of Shroder Salomon Smith Barney told Reuters.

BA (BAY), like its rival Lufthansa (LHA) and KLM of the Netherlands, has grounded flights to meet a decline in demand since September 11. But BA was in trouble before the terror attacks as a global economic slowdown and low-cost operators won customers over with cheap tickets.

The airline is heavily dependent on its lucrative North American routes but corporations have slashed travel budgets in reaction to sluggish economies last year. The carrier posted an operating profit of £158 million, up from £50 million for the same quarter a year earlier, while analysts' polled by Reuters has forecast a range of £4 to £100 million.

To meet the new challenges from low-cost airline the company has slashed the fares on 108 European routes. The company hopes its plans to reduce costs by selling and cutting unprofitable routes would save £450 million by March 2003 and £650 million by March 2004.

BA Chief Executive Rod Eddington said airline was only six months into its two year restructuring plan. And when asked by reporters when revenues would pick up, he said: "Nobody knows"

BA managed to increased average fare yields by five percent and cut its net debt by £428 million to £5.866 billion, as employee costs dropped almost 14 percent and it parked and sold jets.